Chances are if you're reading this, you already know a little bit about land trusts. Maybe you've even taken the next step and secured some of your real estate investments in a land trust.
But if you're new to investing or land trusts, you may not be aware of the fact that you can actually use them to hold all sorts of things, including real estate notes. Learn more about how, and why, you may want to use this fact to your advantage below.
Most investors who are already familiar with land trusts aren't hip to their level of versatility. Most people think of land trusts as a place to stash a property and title. In fact, almost anything connected to your properly at all can be secured in a land trust.
We'll talk more about real estate notes below, but some other things your land trust can hold include deeds, financial agreements, accounts for regular upkeep services related to the property, and more.
The practical applications here are broad. Let's say you learn your new investment home is sitting on top of a natural gas deposit. Cha-ching: that's great news! The even better news is once you hammer out a contract to capitalize on your new-found resource, the rights to the natural gas (or oil, etc.) can also be protected by your land trust.
Just like you don't want to hold property in your legal name, you don't want notes tied to your identity. This is a rule of thumb for any asset. There are several reasons for this, and most of them have to do with asset and liability protection or staying out of civil court. But there are also considerations specific to note holders.
Notes can be a risky business for everyone involved. If you're just now learning about notes, they essentially function like loans. While notes and other types of loans can be very lucrative, there is always a definite risk that the recipient will default, or otherwise fail to pay up. Traditional lenders will find this costly and annoying, but note holders have an additional problem on their hands when things go south: foreclosure.
That's right: if you are holding in a note and your arrangement goes sideways, you're left holding the bag in the event of a foreclosure. And even if you're one of the wealthiest and most successful investors out there, you don't want a foreclosure dirtying up your record.
The good news is, you can completely sidestep this problem by holding your notes in a land trust. If you do a lot of this type of business, a default is nearly inevitable at some point. But the use of a land trust will protect you and your good name from the consequences. It's only fair, considering you're not the one who failed to keep your end of the deal.
This strategy works because the land trust keeps you as an individual separate from any properties, notes, or other related assets. Your trustee's name will appear instead of your own on the documents. But you are the one that will be spared the bruises to your budget and reputation.
The mechanics of moving your notes into the land trust are the same as they would be for any other asset. Our experts at Royal Legal Solutions can help you. If you're in this business, or planning to incorporate notes into your investments, make the smart move. Schedule your consultation before issuing anything.
Scott Royal Smith is an asset protection attorney and long-time real estate investor. He's on a mission to help fellow investors free their time, protect their assets, and create lasting wealth.
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